Management Accounting Research 24 (2013) 82–87

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Management Accounting Research

journal homepage: www.elsevier.com/locate/mar

Editorial

Risk and risk management in management accounting and control

a r t i c l e i n f o a b s t r a c t

Keywords: Recent world events, most notably the global financial crisis, have refocused and intensified
Risk management interest on risk and the nature of systems that operate to manage risk. One area that has
Management accounting received relatively little attention is the interrelation between risk, risk management and
Management control
management accounting and control practices. This editorial provides an introduction to
the special issue of the journal on “Risk and Risk Management in Management Accounting
and Control”. It argues that risk and the way it is managed has become a feature of organi-
zational life in both the public and private sectors. By changing organizational practices risk
management can facilitate and legitimise certain ways of organizing. It has the potential
to change lines of responsibility and accountability in organizations, representing a par-
ticular way of governing individuals and activities. The argument is further made that risk
management has moved away from being an issue of narrow concern to finance (value at
risk, derivatives, etc.) or accountants (financial statement disclosure, etc.) to an issue about
management control and therefore a key area in which management accountants need to
engage. This editorial also highlights the potential side-effects of risk management, includ-
ing issues around trust and accountability, but also the focus on secondary or defensive risk
management and the rise of reputation risk.
Crown Copyright © 2013 Published by Elsevier Ltd. All rights reserved.

Risk and the way it is managed has become a feature
of organizational life in both the public and private sec-
tors. Since the first Management Accounting Research special
issue on risk management was published in 2009, there
has been a great deal of attention to risk in academic cir-
cles, in industry, in the professions and in the media. Recent
world events including the global financial crisis, the finan-
cial crisis facing the Eurozone, the horsemeat scandal, the
Japanese earthquake and tsunami, the floods in Thailand
and the Deepwater Horizon oil spill in the Gulf of Mexico
have all refocused and intensified interest in risk. In partic-
ular, the nature of systems that operate to manage risk and
the outcomes of risk management (Scheytt et al., 2006).
This is not to say that the world has got riskier as Beck
(1992) suggests – at the end of the day the Chernobyl
disaster was worse in terms of human deaths and suf-
fering than Deepwater Horizon – although the long-term
ecological and economic consequences are still unknown.
Nevertheless, the perception of risk is growing and orga-
nizational practices have increasingly become organised
around risk. This in part is due to three factors: first, the
increased interest in corporate governance and a focus by
Boards of Directors on identifying, assessing, treating and
monitoring risks as well as evaluating the effectiveness
of management controls to manage risk; second, a trend
towards world-wide government regulation utilising risk-
based regulatory approaches that focus on tighter internal
control mechanisms. For example, legislation in the form of
the Sarbanes–Oxley Act of 2002 in the US, the UK’s Corpo-
rate Governance Code (Financial Reporting Council, 2010),
the Basle banking accords, the framework implemented by
the Committee of Sponsoring Organizations of the Tread-
way Commission (COSO), and the adoption of ISO31000
as the international risk management standard. Similar
frameworks have been created in other countries; third,
the media amplification of scandals (Soin and Huber, in
press), although as Kasperson et al. (2003) highlight, this
view should be treated with caution.
These factors suggest that the study of risk and risk man-
agement has moved beyond the silos of health and safety,
insurance and credit management and the narrow treat-
ments by finance (including calculations of value at risk
and the use of derivatives) and by accounting (especially
the focus on disclosure in financial statements). The global

1044-5005/$ – see front matter. Crown Copyright © 2013 Published by Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.mar.2013.04.003
 Editorial / Management Accounting Research 24 (2013) 82–87
financial crisis highlighted the weakness of ignoring ‘oper-
ational risk’: the risks arising from the actions of people,
systems and processes and a broader appreciation of the
external risks facing organisations. The international risk
management standard ISO31000 (ISO, 2009) defines risk as
the effect of uncertainty on achieving objectives; with risk
management being the set of principles, frameworks and
processes for managing risk. The movement towards enter-
prise risk management (ERM) (COSO, 2004) has shifted
the focus to a more holistic appreciation of risk. It high-
lights that appropriate risk-based controls (COSO, 2007)
need to be put in place to help ensure, as far as possible,
that organizational objectives are achieved. This has impor-
tant implications for management accounting researchers
and practitioners, especially those concerned with man-
agement control.
The amplified public perception of risk has acted as
an evolutionary pressure that has accelerated the devel-
opment of risk management in organizational settings.
In a relatively short space of time there has been some-
thing of a revolution in the understanding and practice of
risk management (Power, 2007; Power et al., 2009). Pro-
moted by academic scholars, risk ‘experts’, professional
bodies, consultants, international organizations and regu-
lators – risk, and the way it is managed – has become an
increasingly prominent feature of organizations and their
environments. From its origins in specialist areas such as
occupational health and safety, insurance, and the hedging
of financial and credit risks, it has expanded to become a
cornerstone of good governance and, through risk-based
regulation, it has become a regulatory resource (Ayres and
Braithwaite, 1992; McGoun, 1995; Miller et al., 2008) in
both the private and public sectors.
The failure of many high profile financial institutions
has raised widespread concerns about the use of complex
financial derivatives in the relentless pursuit of short-term
profit. These failures have accentuated the failures of gov-
ernance and internal control due to excessive risk taking
behaviour. The Deepwater Horizon oil spill in the Gulf of
Mexico not only resulted in environmental, economic and
reputational losses, but also highlights the consequences
of poor risk management practices where excessive cost-
cutting becomes an organizational priority. By changing
organizational practices (for example, through the use of
artefacts like risk registers, risk maps and ERM systems),
risk management can facilitate and legitimise certain ways
of organizing. It has the potential to change lines of respon-
sibility and accountability in organizations, representing
a particular way of governing individuals and activities.
Similar to Miller’s (1994) arguments around accounting
systems, risk management systems can:
“transform the formal structures of organizations in line
with powerful institutional rules. These rules can then
come to be binding on particular organizations. The
formal structures of organizations can thus reflect the
myths of their institutional environments, rather than
the demands of their work activities” (p. 10).
Risk management is not just an important concern to
individual organizations it also provides a link between
organizations and the environment in which they operate.
83
Financial and environmental disasters affect multiple orga-
nizations and whole sections of society. As Power (2004)
has argued, “secondary risks to an organization’s reputa-
tion are becoming as significant as the primary risks for
which experts have knowledge and training” (p.14). Risk
management is increasingly seen as critical at a cross-
organizational level. Indeed, three of the papers in this
special issue (Dekker, Sakaguch and Kawai; Ding, Dekker
and Groot; and Jordan, Jørgensen and Mitterhofer) focus
on inter-firm collaboration through supply chain networks
or project management. Risk management is also seen as
inseparable from broader international issues, as exem-
plified in the paper by Plesner Rossing on the taxation
implications of international transfer pricing.
The manner in which risk management changes organi-
zational and management control practices is quite striking
(Huber, 2009). For example, in the UK higher education
sector, the Higher Education Funding Council for England
(HEFCE) and more recently the Quality Assurance Agency
(QAA), have both utilised risk-based regulation as a mode
of control for university governance and internal control.
Since 2002, HEFCE has imposed prescriptive guidance on
UK universities which requires them to implement risk
management systems (HEFCE, 2001–28). Universities now
have high level risk and audit committees, risk ‘champions’
and monitoring and control systems that provide over-
sight of the risk management process – something that was
unheard of ten years ago (Power et al., 2009).
In some organizations however, the whole risk manage-
ment approach can be seen as a ‘box ticking’ exercise that
does not impact on day-to-day organizational processes
but merely represents a need for the external display of
internal coherence. As with many management systems,
opponents see box-ticking as a frequently occurring prob-
lem distracting attention from other types of risks (Power,
2007). The assumption in much of the work on governance-
led approaches to risk management is that the higher the
risk, the greater should be the level of management control,
a logical consequence of the cybernetic model of control.
However, Berry et al. (2005) identified the ‘risk of control’:
as controls become more prescriptive and dependent on
the predictive model in use “organizational participants
may have less room to manoeuvre, and in a turbulent
environment this may result in an increase rather than
a decrease in risk” (p. 297) due to a lack of flexibility as
excessive control leads to opportunities being missed.
This leads us to questions that have been raised about
whether organizations – through their choice of technolo-
gies, products, processes and globalised locations – have
simply become risky by design? How does risk manage-
ment relate to inter-firm activities and organizations in a
network – for example in supply chains? How can organi-
zations (and institutions) be designed to effectively assess,
manage and govern risks? What are the organizational side
effects of risk management – including the side effects of
managing risk itself (Scheytt et al., 2006) and, what is the
nature of the relationship between the chief management
accountant and the risk function? Under risk-based regula-
tion the use of risk management systems is often a response
to limited regulatory resources (Power, 2007). Soin and
Huber (in press) present this argument in the case of UK
84 Editorial / Management Accounting Research 24 (2013) 82–87
financial services and the introduction of the risk manage-
ment systems under the tenure of the Financial Services
Authority. Does pressure on reducing costs, for example
through increased competition or compliance costs, create
new risks (Dunne and Helliar, 2002)?
However, the consequences for management account-
ing and control systems are not entirely clear. While there
has been significant attention in the accounting litera-
ture around the financial and technical aspects of risk
management (e.g. Crouhy et al., 2000; Langfield-Smith,
2008; Stulz, 1996), little attention has been paid to the
actual management of risk and the effects of risk man-
agement in organizations. Indeed, with a few exceptions
(Arena et al., 2010; Bhimani, 2009; Collier and Berry, 2002;
Mikes, 2009, 2011; Power et al., 2009; Scheytt et al., 2006;
Wahlström, 2009; Woods, 2009), we have relatively little
understanding about the (complex) interrelation between
risk, risk management and management accounting and
control practices. Furthermore, the discourse of risk and
the way it is managed is not always a feature of the
wider management control framework in organizations.
Research by Collier et al. (2007) identified the margina-
lisation of management accountants in risk management
due to the perceived narrowness of their (accounting) skills
base relative to a broader appreciation of organizational
risk. The fundamental research question is how manage-
ment accountants are implicated in risk management,
particularly in terms of their understanding of manage-
ment control and performance measurement which are
directed, like risk management, at the achievement of orga-
nizational objectives.
This special issue provides a collection of papers which
contributes to discussions about the issues raised above
and the interrelation between risk management and man-
agement accounting and control practices. Despite the
variety of papers, one over-arching theme is that risk man-
agement has moved away from being seen from the finance
silo’s view of value at risk and derivatives, and the account-
ing silo’s view of disclosure in financial reports to a central
concern with management control. In various ways, the
papers deal with several inter-related themes that expand
the notion of risk management beyond its current bound-
aries in the academic literature. Drawing on Miller (1994),
the papers here show that risk management “could not,
and should not, be studied as an organizational practice in
isolation from the wider social and institutional context in
which it operates” (p. 9). Indeed, the social construction of
risk objects (Hilgartner, 1992), managerial processes and
the design of risk governance systems have implications
for the practice of management accounting and control.
The first two papers in our collection offer a critique
of risk management. Huber and Scheytt ask why risk
management, in the face of its evident failure to man-
age risks during the global financial crisis, has retained
its importance? Building on the work of Power (2007)
and Italian social theorist Agamben (1998, 2005), Huber
and Scheytt show how elites can use management con-
trol systems for their own interests. They apply Agamben’s
notion of a “permanent state of exception” to develop
their idea of a dispositif of risk management which repro-
duces larger societal values and determines organizational
responses to the rise of risk management which in turn
shapes organizational (im)balances of power. Elites are
enabled to take extraordinary measures which cannot be
rescinded after the initial state of exception has ended.
These measures add to, but also gradually replace, other
forms of management control as they turn the excep-
tion into an enduring standard, and use fear and anxiety
which, in turn, can result in even more calls for risk
management.
Tekathen and Dechow argue against the definition of
enterprise risk management (ERM) as a set of activities
that lead to organizational alignment and accountability.
The authors highlight three insights from their research:
First, ERM systems draw out how uncertainty creates
organizational space for heterogeneity, potentiality and
otherness that is otherwise rendered opaque in daily busi-
ness operations. Second, ERM processes produce a nearly
continuous re-alignment of subjects and objects which
effectively become separated from, rather than integrated
with each other, making it difficult to manage risks on
an enterprise-wide basis. Third, ERM allows people to
assume stewardship of everything and nothing at the same
time, because ERM systems produce awkward, incom-
plete, yet complex information objects that require users
to engage critically with the ways in which risk and chance
concurrently produce clarity and opacity. Tekathen and
Dechow conclude that these three findings suggest that
ERM creates inverse information hierarchies pushing com-
plex, unresolved and abstract information to the top of the
organization.
The third and fourth papers in this special issue build
on prior research findings in relation to supply chains and
draw out the relationship between organizations in a sup-
ply chain network connected through risk management.
Dekker, Sakaguch and Kawai identify the risk exposure
emanating from the supply chain and examine the use of
control practices to manage risks associated with inten-
sified collaboration with supply chain partners. Dekker
et al. highlight the role of perceived goodwill and compe-
tence trust as well as management control practices and
find that for risky transactions, buyers favour suppliers
in whom they place high goodwill trust, while trust in
supplier competencies facilitates the use of supply chain
management (SCM) practices. However, they also show
that the impact of certain transaction characteristics, for
example, technological unpredictability, and monitoring
problems appear to reduce the ability to place confidence in
suppliers’ goodwill and limit the use of SCM practices that
require more intensive cooperation. Dekker et al. conclude
that the implications of risk extend well beyond the con-
tract and influence the broader package of practices used
for managing cooperation between firms in a supply chain
relationship.
Ding, Dekker and Groot studied partner selection and
formal contracts as key approaches in managing transac-
tion risk in inter-firm relationships. Focusing on partner
selection criteria brings in the notion of risk as it enables
a more fine-grained analysis of which selection dimen-
sion mediates risk on which contract dimensions. Ding
et al.’s findings reveal that when facing increasing trans-
action risk resulting from high task interdependence and
 Editorial / Management Accounting Research 24 (2013) 82–87
a broad transaction scope, firms select their partners by
relying on trust-based and reputation-based selection
criteria. However, they also use more complex contracts.
When the transaction scope is broad and firms have had
prior ties with the partner, Ding et al. found that firms place
greater weight on common culture for partner selection.
The fifth paper is a further example of inter-firm risk
management, but in the context of project management.
Jordan, Jørgensen and Mitterhofer investigate the use of
risk maps in inter-organizational project collaboration in
the Norwegian petroleum industry. Jordan et al. show how
risk representation technologies such as risk maps come
to be seen as ‘useful’ beyond their conventional role as a
technology of risk management. Their study extends and
complements existing explanations of the pervasiveness of
enterprise risk management technologies and its interre-
lation with project management and inter-organizational
controls. Jordan et al. show how risk maps act as mediating
instruments, which allow distributed actors to adjudi-
cate interests, build confidence in and associate with the
project and its progress over time. In particular, risk maps
play a role in the production of commitment, the cre-
ation of the project’s identity and act as a platform for
mediating concerns between different actor groups in an
inter-organizational setting.
In the final paper in this special issue, Plesner Ross-
ing examines the impact of tax strategy on management
control systems in a multinational enterprise (MNE) facing
transfer pricing tax risks and finds that it is contingent upon
the MNE’s response to its tax environment. Taking a con-
tingency perspective and applying Simons (1995) ‘Levers
of Control’ framework, Plesner Rossing found that belief
systems and interactive control systems are used to rein-
force the values upon which the tax strategy is based,
and to stimulate learning about the tax environment for
transfer pricing practices. Boundary systems and diagnos-
tic control systems are used prescriptively to constrain and
guide accepted behaviour, and to ensure monitoring of the
arms-length nature of business unit profit margins. Plesner
Rossing also illustrated the role of inter-organisational net-
work collaboration across MNE transfer pricing tax experts,
a reputation-based selection criterion similar to the finding
in the Ding et al. paper.
These papers identify some important themes that
move discussion beyond the realms of risk management as
yet another kind of formal management control. The role
of power and its use by elites (Huber and Scheytt); how
uncertainty creates organizational space for heterogeneity
and leads to complex, unresolved and abstract informa-
tion being pushed to the top of the organization (Tekathen
and Dechow). In the inter-firm perspective we can see
how risk influences the broader package of practices to
manage cooperation between firms in a supply chain rela-
tionship (Dekker, Sakaguch and Kawai); and how partner
selection criteria brings in the notion of risk as it enables
a more fine-grained analysis of which selection dimen-
sion mediates risk on which contract dimensions (Ding,
Dekker and Groot). Linking the idea of power and elites
with inter-organizational relationships, risk representa-
tion technologies such as risk maps can be seen as ‘useful’
beyond their conventional role as a technology of risk
85
management (Jordan, Jørgensen and Mitterhofer); while
the role of international experts and the organizational
response to its tax environment impacts management
controls when facing transfer pricing tax risks (Plesner
Rossing).
The collection of papers in this special issue reveal
that organizations and their risk management systems
do not exist in a vacuum – they are essentially dynamic
entities characterised by power, politics and fear, as
well as a desire for organizations to act as if they
are in control. Through risk management, organiza-
tions are being organized, legalized and made audited
(Power, 2007). Thus, future research in risk manage-
ment and how it relates to management accounting and
control needs to take account of the wider social, insti-
tutional and organizational context in which it operates,
rather than just focusing on the technical aspects of risk
management. As the papers in this special issue have to
some extent demonstrated, risk management is not dis-
similar to broader accounting practice and in many ways
can be seen as:
“an attempt to intervene, to act upon individuals, enti-
ties and processes to transform them and achieve
specific ends” (Miller, 1994: 1).
The work of Power (2004, 2007) raises a number of
issues that are of particular interest for management
accounting and control researchers as well as the roles
of management accountants. There are two aspects here
that are particularly relevant: the side effects of risk man-
agement and the relationship between risk management
and uncertainty: Power (2004, 2007) highlights the ‘risks
of risk management’ and the emergence of ‘secondary’ or
‘defensive’ risk management. He suggests that:
“experts who are being made increasingly accountable
for what they do are now becoming more preoccupied
with managing their own risks”(Power, 2004, p.14).
Power argues that this “culture of defensiveness” (p. 14)
can be seen in the ‘individualization’ of risk by various pro-
fessionals – whereby, experts are becoming pre-occupied
with managing their own risk which necessitates reflexive
behaviour (Beck, 1992; Giddens, 1990). Further side effects
include blame avoidance (Hood, 2002), fear of sanctions,
legalization and the re-drawing of (organizational) bound-
aries that arguably may lead to a re-enforcing of the ‘box
ticking’ culture.
In terms of risk management and uncertainty there have
been substantial developments in organizational practice
that focus on risk management and issues of governance,
but the impact of risk and uncertainty has not been fully
explored. Managers have always faced uncertainty – it is a
central feature of any organizational setting. Power (2007)
argues that when uncertainty is organized, it becomes a
risk to be managed. The range of uncertainties deemed
in need of management has significantly increased and
includes threats such as operational risks, reputational
risks and strategic risks. These changes have implications
for management accountants in relation to the identifica-
tion, monitoring, control and mitigation of risk and yet, the
discourse of risk and the way it is managed is not always
86 Editorial / Management Accounting Research 24 (2013) 82–87
a feature of the wider management control framework in
organizations.
Of particular interest here is the role of management
accountants: While we argue that risk management has
moved away from being an issue about calculative cul-
tures (Mikes, 2009) to one of management control, where
do management accountants fit into this? In the case
of UK financial services, Soin and Scheytt (2009) high-
light the growing significance of risk-based approaches
to the regulation of financial services institutions (since
the mid-1990s) and the subsequent diminishing rele-
vance of management accounting systems and the role
of management accountants – arguing that the impact of
new technologies has reduced the emphasis on cost and
enhanced the focus on risk. Baldvinsdottir et al. (2010) have
documented the changing role of the management accoun-
tant and it might be the case that we are entering a new
phase of change in relation to risk management practice.
Burns and Baldvinsdottir (2005) highlight the emergence
of ‘hybrid accountants’ who they found “were becoming
involved in wider, integrated business situations, agendas
and decision-making forums” (p. 749). It might be the case
that management accountants start to take a more proac-
tive role in connecting and communicating risk control
systems acting as points of reference for knowledge sharing
both within and outside the organization.
If, as Power (2004:13) notes, risk management is “part of
a new style of organizational discipline and accountability”,
issues around accountability and responsibility, and out-
comes and performance need to be further researched – by
linking risk management and control activities to organiza-
tional objectives, for example, in the case of ERM systems.
Anecdotal evidence suggests that risk management is find-
ing its way into the overall performance measurement
systems of banks (although post-financial crisis, the actual
value of this can be disputed) and this is familiar territory
for management accounting (Williamson, 2004).
One final observation is around the issue of trust. Many
of the papers in this special issue, Dekker et al., Ding
et al., Huber and Scheytt and Tekathen and Dechow, high-
light issues around trust. Trust has been constructed as
an alternative to accountability where accountability is
undertaken through formal control systems such as risk
management. The intention of these systems is to create
accountability in order to foster trust. One example is rep-
utation risk where the aim is to create accountability, i.e.
external trust. However it is not entirely clear how this
impacts on trust between actors inside organizations, how
it leads to defensive behavior, fear of sanctions and blame
avoidance by organizational actors. This would be one fruit-
ful area for future research.
Acknowledgements
The authors are grateful for the valuable comments
and suggestions made by John Burns, David Otley, Robert
Scapens and Bob Soin on an earlier version of this essay. We
would also like to thank all the reviewers involved in this
special issue. This special issue had its origins in the 8th
International Management Control Research Conference
held at the University of Greenwich in 2010. The authors
acknowledge the support of the Management Control Asso-
ciation and its chair Professor Elaine Harris in helping to
make this special issue possible.
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